May 22, 2019

Colorado Court of Appeals: Landowners Who Sold Property Rights Not Allowed to Sever Shares in Mutual Ditch Company from Land in Violation of Previously Existing Conservation Easement

The Colorado Court of Appeals issued its opinion in Mesa County Land Conservancy, Inc. v. Allen on June 7, 2012.

Conservation Easement—Mutual Ditch Shares—Summary Judgment—Injunctive Relief.

In this dispute over a conservation easement encumbering mutual ditch shares, defendants Sam and Susie Allen appealed the trial court’s judgment (1) granting summary judgment in favor of plaintiff Mesa County Land Conservancy, Inc. (Mesa Land Trust); (2) denying the Allens’ motions for summary judgment; and (3) granting injunctive relief in favor of Mesa Land Trust. The judgment was affirmed.

In 1990, the United States, acting by and through the Farmers Home Administration, granted a deed of conservation easement (1990 Easement) to Mesa Land Trust. The conservation easement covered 140 acres of land and provided that “[a]ll water rights held at the date of this conveyance shall remain with this land.” It was recorded in the Mesa County real estate records. At the time of the conveyance, the United States held nine shares of capital stock in a mutual ditch company, the Big Creek Reservoir Company (Big Creek Shares).

The Allens purchased the property in 1993, subject to the 1990 Easement and their deed specifically referred to the Big Creek Shares. In 2007, the Allens sold the property, but purported to exempt the Big Creek Shares from the conveyance. Mesa Land Trust sought declaratory and injunctive relief against the Allens for violating the terms of the 1990 Easement by attempting to sever the Big Creek Shares from the land.

The Allens filed two motions for summary judgment on grounds that the Big Creek Shares were not encumbered by the 1990 Easement because it did not comply with CRS § 38-30.5-104(5) or with article 8 of Colorado’s Uniform Commercial Code (UCC). Mesa Land Trust moved for summary judgment, seeking a declaratory judgment that the Big Creek Shares could not be exempted from the conveyance. The trial court issued a permanent injunction in favor of Mesa Land Trust, requiring the Allens to convey the Big Creek Shares to the purchasers and prohibiting them from severing them from the property. The Allens appealed.

In 2003, the General Assembly amended certain parts of the conservation easement statutes. The Allens argued that the 1990 Easement is invalid because the definition of “conservation easement” in the relevant statute in effect in 1990 did not authorize encumbrance of water rights; and (2) the 1990 Easement does not comply with the notice requirements of the 2003 amendment of CRS § 38-30.5-104(5). Mesa Land Trust argued that the 1990 Easement is valid because the definition of conservation in the statute in effect when the 1990 Easement was created—the 1976 statute—allowed water rights to be encumbered, and if the 2003 amendment to the notice requirement applies retroactively, it is unconstitutionally retrospective.

The Court of Appeals determined that (1) the statutory language was ambiguous before the 2003 amendments; (2) the legislature intended to clarify, and not to change, the statute; and (3) the statute includes a provision that the 2003 amendment applies to previously created conservation easements. Therefore, the Court held that the legislature intended the statute to apply retroactively. It then considered whether it was unconstitutionally retrospective.

Mesa Land Trust contended that the 2003 amendment is unconstitutionally retrospective solely as to the notice requirement because it impairs Mesa Land Trust’s vested rights in the Big Creek Shares. The Allens responded that Mesa Land Trust does not have any vested rights in the Big Creek Shares because the 1976 statute did not recognize conservation easements encumbering water rights as valid interests in land. The Court disagreed with the Allens, finding that the 1976 statute did authorize the creation of conservation easements encumbering water rights (this was clarified by the 2003 amendment).

The Court also agreed with the trial court that application of the 2003 notice requirement to easements that predated the enactment of that requirement would be unconstitutional. If the requirement were imposed, it would render all pre-existing conservation easements covered by that requirement invalid unless, by chance, a grantor complied with a sixty-day notice provision that did not exist when the easement was created.

Finally, the Allens argued that the Big Creek Shares are securities subject to a previous version of the UCC. The Court rejected this argument, finding that it is well established that the UCC does not apply to mutual ditch shares as they are not corporations in a legal sense but merely vehicles for individual ownership of water rights. Accordingly, the trial court’s judgment was affirmed.

Summary and full case available here.

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